- Title: BT warns on profit over Italian scandal and UK slowdown
- Date: 24th January 2017
- Summary: LONDON, ENGLAND UK (FILE) (REUTERS) VARIOUS OF BT SHOP
- Embargoed: 7th February 2017 13:37
- Keywords: BT warns profit over Italian scandal UK slowdown
- Location: LONDON, ENGLAND, UK / UNKNOWN
- City: LONDON, ENGLAND, UK / UNKNOWN
- Country: United Kingdom
- Topics: Company News Markets,Economic Events
- Reuters ID: LVA00160FWSR1
- Aspect Ratio: 16:9
- Story Text: BT lost almost a fifth of its market value on Tuesday (January 24) after an Italian accounting scandal compounded a slowdown in its British government business to force the firm to cut revenue, earnings and cash flow forecasts for the next two years.
Shares in the 171-year-old British firm were on track for their worst ever one day fall after BT said it would now not be able to grow revenues for the next two years, bringing an abrupt end to years of painful and steady recovery following the 2008 economic downturn.
The telecoms company, which had revealed an initial investigation into historical accounting practices in Italy in October, said a review had found a complex set of improper sales, purchase and leasing transactions.
A writedown to the business of 145 million pounds ($181 million), announced in October, has been increased by more than three times to around 530 million pounds.
According to a person familiar with the situation, staff had colluded with suppliers to inflate their accounts over a number of years, before a whistleblower contacted senior executives at BT headquarters last summer to make them aware of the practices.
Although the update on the Italian business grabbed the headlines, the division only contributed around 1 percent of the group's core earnings for the year to the end of last March.
More serious for the long term was the comment in the unscheduled statement that BT had also seen a deterioration in its core corporate and public sector businesses.
"Public sector spending is falling, we know that in the UK and we expect to see more declines throughout the rest of this parliament and that's really starting to bite with BT as well. Remember the government was a big purchaser of their services - not that that's fallen - that's going to be a big problem. Things like BT Sport, BT TV, that sort of thing, that's doing pretty well but that's not enough to cover these big challenges that the company faces," said Kathleen Brooks, Senior Market Analyst at City Index.
BT shares lost more than a fifth of their value last year, while the benchmark FTSE index rose 14 percent. The shares traded 17.5 percent lower at 315.8 pence by 1000 GMT.
BT is facing challenges on a number of fronts - a regulatory battle over its core network, a growing pensions deficit and the cost of expanding its TV business.
BT said group revenue will now not grow for the next two years while the guidance for core earnings, or earnings before interest, tax, depreciation and amortisation, has been cut to 7.6 billion pounds from a previous guidance of 7.9 billion pounds.
Normalised free cash flow for 2016/17 is expected to come in at 2.5 billion pounds, compared with a previous forecast of between 3.1 to 3.2 billion pounds. And free cash flow is also forecast to be lower than the guidance given for 2017/18.
However, it said it expected to increase its dividend per share by at least 10 percent in both 2016/17 and 2017/18.
The group said it had taken immediate steps to strengthen its processes and controls in Italy. It suspended a number of BT Italy's senior management team, who have now left the business, and appointed a new BT Italy CEO who will take charge on Feb. 1.
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